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spk04: Greetings and welcome to the Mark Forged second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Austin Bolling. Thank you, Austin. You may begin.
spk00: Good afternoon. I'm Austin Bollig, Director of Investor Relations of Mark Forge Holding Corporation. Welcome to our second quarter of 2023 results conference call. We will be discussing the results announced in our earnings press release issued after market closed today. With me on the call is our President and CEO, Shai Turem, and our Acting CFO, Asaf Sapori. Before we get started, I'd like to remind everyone that management will be making statements during this call that include estimates and other forward-looking statements, which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. These statements represent management's views as of today, August 10, 2023, and are subject to material risks and uncertainties that could cause actual results to differ materially. Mark Forge disclaims any intention or obligation, except as required by law, to update or revise forward-looking statements. Also during the course of today's call, we refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued after market closed today, which can also be found at our website at investors.markforge.com. I'll now turn the call over to Shai Taram, President and CEO of Markforged.
spk02: Thank you, Austin, and thank you, everyone, for joining us on our Q2 2023 earnings call. I'm proud of our team performance in the second quarter as we continue to execute on our long-term strategy to grow through innovation and bring industrial production to the point of need. And not less important, we prudently managed our costs, as well keeping us on a firm path to profitability. While we have a long journey ahead, we believe Markforge feels a critical need in the market to strengthen manufacturing resiliency and supply chains. The demand for our solution continues to grow as our customers identify more and more opportunities to cut costs, save time, and reduce physical inventories while building efficiencies to their own production lines. With our upcoming new platforms and capabilities, we are confident in our ability to accelerate our growth in 2024. Demand for the digital forge continue to grow globally in Q2, even in the face of high cost of capital environment, which is restricting capital expense investments. As such, while conversions to close deals are still challenging in the short term, we are confident in our longer term growth projection. especially with our upcoming product releases. Our latest composite printer innovation, the FX20, continues to excite our customers globally, specifically within industrial and high-regulated markets like aerospace and automotive. Coupled with the growing order pipeline of our newest metal binder jetting solution, the PX100, we remain excited about our future growth prospects. but we are not done yet. For the last two years, we've been hard at work on multiple new product innovations that accelerate production at the point of need and increase our addressable market. We believe we have the go-to-market engine in place to truly scale these new innovations. I look forward to sharing these new products with you over the coming quarters. We are seeing manufacturers around the world reshaping their supply chains as they seek more resiliency and flexibility by investing heavily in digital transformation and industrial automation. Our customers tell us that DigitalForge is the perfect tool for their manufacturing floor and accelerates their ability to produce industrial parts on demand right where they need them. Just one example of these trends in action is our recent win with a tier one automotive OEM. In Q2, we completed a very important and strategic transaction with a global automotive leader to drive flexibility and cost savings by reducing the reliance on physical inventory. This sale includes over two dozen of both advanced composite printers and metal systems as part of a multi-year strategic initiative. This win is a great proof point of how our platforms of hardware, materials and software and growing distributed network of printers are uniquely positioned to proactively capitalize on the growing market opportunity for point of need industrial production. We beat out the competition by delivering the reliability required to print mission critical parts at scale with the advanced software needed to securely manage a fleet of this size in real time across multiple teams of engineers and IT systems. Markforge is extremely excited about this deal, and we believe we can continue to leverage these same strengths to win similar opportunities in the future. Another example of how our innovations are providing value to our customers is SQP Engineering. an industrial manufacturing solution provider in Perth, Australia. SQP faced challenges producing a complex cover for mining equipment systems. Traditional machining methods were not cost-effective, and their existing polymer 3D printer was too slow and produced parts which did not perform. To address these issues, SQP turned to our FX20, which is significantly reduced the print time compared to their existing polymer 3D printer, while vastly improving performance and surface finish. They also integrated the Markforged Metalex system to expand their additive capabilities. With these solutions, SQP can now manufacture a wide range of production-grade parts that cannot be machined, offering better pricing and turnaround times. The company plans to use the FX20 and Metalex systems to expand into the medical, aviation, and agriculture sectors. While we continue to grow as we target the $43 billion market opportunity to make supply chains more resilient and flexible, we remain mindful of our operational efficiencies in driving margin expansion in pursuit of profitable, sustainable growth. Non-GAAP growth margins are tracking towards the upper end of our 2023 guidance while we remain on track to achieve full production scale for the FX20. We continue to remain focused on our operating expenses, which were down 11% year-over-year on a non-GAAP basis, and on finding additional working capital efficiencies. Capital management is key, and we remain committed to achieving profitability with a healthy balance sheet and without dependency on external funding. The second half of 2023 is shaping up to be super exciting for us as we plan multiple new product introductions which further enhance our current platform and should contribute to our accelerated growth in 2024. I can't wait to welcome you to our Fall Investor Day in our new headquarters where we'll get a chance to showcase some of our products and meet the people who are working tirelessly every day to accelerate the adoption of the industrial production right at the point of need. With that, I now turn the call over to Asaf Sibori, our Acting CFO, who will offer more details on our financial performance and guidance for the remainder of the year.
spk01: Thank you, Shai, and good evening, everyone. I will be covering our financial results for the second quarter of 2023. Please note that my comments reflect our non-GAAP results and outlook. For your reference, our earnings press release issued earlier this afternoon and posted to our investor relations website includes our GAAP and non-GAAP reconciliation to assist with my commentary. So let's begin. We had another quarter of growth with revenue reaching 25.4 million representing a 5% increase compared to 24.2 million in the second quarter of 2022. We also generated a gross profit margin of 48.3% compared to 53.8% in the second quarter of 2022. These results are consistent with our operational plan and remain among the highest for publicly traded companies in our space. As we have discussed in the past, gross margins were impacted as we continue to ramp up the production of FX20. However, we are confident that gross margins will start to gradually expand to historical levels that are above 50% in 2024 and beyond. Our operating expenses were $26.6 million for the second quarter of 2023. down from 30 million in the second quarter of 2022. This improvement in operating expenses is based on actions we took, which reflect our commitment to incremental efficiencies and focus on execution. Net loss for the second quarter of 23 was 12.5 million or a loss of 6 cents per share based on our weighted average shares outstanding for the quarter of 196.4 million. Our net cash used in operating activities in the first half of 23 decreased by 10.9 million or approximately 26% from the first half of 22. We expect our cash utilization to continue to decrease over the coming quarters as a result of higher revenue prudent OPEC spend, and working capital efficiencies. Now moving on to our guidance. Our results for the first half of the year are in line with our expectations. The uncertain macro environment and relatively high cost of capital continue to weigh on our customers' purchasing behavior. Therefore, we are maintaining our revenue guidance to be within the range of $101 to $110 million. In accordance with similar seasonality of our industry, we anticipate Q3 revenue to be mostly in line with Q2. We expect revenue to see the typical end of year ramp in Q4. Considering our strong execution in the first half of the year, we now believe that there is more opportunity for gross margins to be within the mid to upper range of our guidance of 47 to 49% for the year. We plan to continue the disciplined approach to operating expenses as we progress through 2023. We expect operating expenses to decline as a percentage of revenue as well as in absolute terms year over year, resulting in a lower expected operating loss in the range of 54 to 57 million. our EPS loss per share is expected to be between 25 and 27 cents per share. We are confident that our accomplishments to date, ongoing focus on execution, and commitment to consistently release new innovative technologies puts us on the right path to profitability. That concludes our prepared remarks today. Operator, please open up the call for questions.
spk04: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star, then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, then 2 if you would like to remove your question from the queue. For participants using the speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Greg Palm of Craig Hellam. Please go ahead.
spk03: Yeah, thanks. This is Danny Agerchon for Greg today. Thanks for taking the questions. I wanted to touch first on maybe just more of what you're seeing out in the market. You've got peers talking about lower visibility, sales cycles lengthening, and maybe some customer push-outs. Maybe it'll tie more into the revenue guidance as well. So a flatter Q3 sequentially that leaves kind of a broad range for Q4. So I guess what are you seeing out there right now? What needs to go right or wrong for Q4 to get to the top or end of that fiscal year guidance range?
spk02: Thank you. I think in general, we continue to see that the cost of capital is higher than previous years, and with that, decision-making on investment in capital equipment takes longer. With that, we do see that our pipeline is increasing materially year over year, and we agree. We also see sales cycle increasing and lengthening, but we don't see this disappear. So we feel actually very good about what's coming, and especially if the environment continues to improve. Based on some of the deals we saw, especially on the strategic side, it's definitely improving. So we are very optimistic about that side. And I think currently we are predicting the traditional seasonality for us between the second half and the first half. we expect to grow more in the second half of the year versus the first half that we usually did.
spk03: Got it. Maybe one on gross margin. I know last quarter a big talking point was kind of the FX-20 production costs improving. Did you see that trend continue into the quarter? Is there more to go on that? How should we look at that?
spk02: I think it's fairly stable. With that, as we said in the call, we are taking the right actions to go back to the 50 plus percent gross margins in 24. So it's on track based on what we see and it's going in the right direction.
spk03: Okay, good. Maybe just one last one on PX100. We're supposed to start shipping in Q3, Q4. Have those started shipping yet? What kind of early feedback have you got on that system, if they have, or early betas or what?
spk02: We have not started shipping them yet. We still expect to ship them in the second half of the year. And there's a lot of excitement. We were able to successfully build a good book of orders for this system. And as we said before, I don't think it's going to be material from a revenue perspective in 2023, but definitely in 2024.
spk03: Okay, I appreciate it. I'll leave it there. Thanks.
spk04: Thank you. The next question is from Shannon Cross of Credit Suisse. Please go ahead.
spk05: Thank you very much. I had a follow-up on the PX question. You know, in terms of the order pipeline, I'm curious, if I order today, when are you telling people that they could receive delivery? Just trying to think about how it ramps through 24.
spk02: If you order today, probably it's going to be Q1 or Q2. Okay.
spk05: Next year. Okay. So I guess when we get to first or second quarter on a year-over-year basis, there should be some decent uplift. Is that fair? From 23?
spk02: Yes. We expect uplift on 24 over 23 with the PX100. That's correct.
spk05: Okay. And I guess have you seen any – Customers come to you as, you know, your systems are ideal for replacing metal parts, given the tighter CapEx budgets. You know, have you seen share gain as maybe customers weigh, you know, metal manufacturing versus your options?
spk02: So I think what we see is that most of our customers come to us with problems from the manufacturing store, and especially trying to reduce costs I was very fortunate to meet a lot of automotive customers, automotive packaging customers, and others. And they are able to reduce the cost per part with our solution sometimes by 10x, which is very significant. And as such, the ROI for them is somewhere between three to nine months on buying the capital equipment. And this is where we see the biggest success on the manufacturing floor.
spk05: Yeah, no, I understand that. I guess what I was trying to figure out is given the CapEx challenges and the, you know, tighter budgets that people are seeing. Do you think you're gaining share vis-a-vis the metal options or is it sort of steady state in terms of demand rates?
spk02: You mean versus traditional manufacturing?
spk05: Either, well, traditional or even maybe some of the metal options that are out there on the AM side. I'm just wondering from a share gain perspective if you've seen any shift given, again, the price differentials in terms of your products versus you know, your printers versus others.
spk01: And maybe it's not the right question to ask. That's fine. I think that you should look at the growth rate that we've been communicating, and we believe that the answer is yes, based on the growth rate that we have had compared to the industry.
spk02: Shannon, I think the bottom line is that all of these parts that we are replacing used to be traditionally manufactured, mainly by CNC. So sometimes we replace them with composite parts. Sometimes we replace them with metal parts, with our metal solution. We actually had a very good metal quarter. And I think each time that we do this and we continue to grow, we take one more market share from traditional manufacturing.
spk05: Okay. And then, I mean, you have sufficient cash. You're still burning cash, but you obviously have a cash balance. I know Velo just announced a large offering. I guess I'm trying to think about how you're feeling about your balance sheet, your capital structures. Silly question. But just in general, your balance sheet at this point and, you know, what level of cash you need to run the business, just comfort level given obviously the industry in general is going through a bit of a rut.
spk01: Yeah, that's a great question. We have a lot of confidence in our ability to maintain our plants. And, you know, our cash utilization is expected to improve as you see more volume upline and as we continue to focus on operational efficiencies. So we feel very comfortable with with our balance sheet and our ability to meet our targets.
spk02: Maybe I would just add, we don't see the need to raise any external funds before we get to profitability. And when we get there, we're still going to have a very healthy balance sheet that allows us to easily operate the business.
spk05: Okay, great. Thank you so much.
spk02: Thank you.
spk04: The next question is from Brian Job of William Lee. Please go ahead.
spk06: Hi. Thanks. Good afternoon. Good evening. Hi. The consumable sales are about flat, quarter over quarter. I'm just wondering, you know, I know the machine's being connected and, you know, that gives you a good view into utilization of the equipment, which is obviously generally a good leading indicator of when someone's going to by the next one. Can you comment at all about what your sense is for utilization of your equipment in the field? And the trend, more importantly, the trend of utilization, if it's increasing, flat, et cetera.
spk02: Definitely. The utilization continues to increase quarter over quarter. So we see, of course, all the active system, as you know, all of our solutions are connected, I would say over 90% of them. And we see all the utilization there. So we continue to increase quarter over quarter. I think there was a little bit of softness coming maybe from Europe. And as you know, Europe is having a little bit of tough times these days. But other than that, the trend continues to improve. And we still see growth year over year. And we still see the utilization continue to increase. And I think we're going to see it even in higher levels as we're going to get to the first or second year of the FX20s in which people are consuming much more materials.
spk06: Got it. Okay. And then can you just provide an updated comment kind of related to the previous question around when you expect the company to reach cash flow breakeven?
spk01: Yeah, absolutely. We feel very comfortable with the plans that we have communicated. We have great cost control, and we are very excited with the opportunity that is ahead of us heading into 2024. So we confirmed the plan and the previous communications that we've had in terms of of break-even and our ability to manage our cash.
spk06: And that's, I guess, to be specific, like more specific than that, end of 24 or are we saying, yeah?
spk02: No, no, correct. We are reaffirming in the end of the last quarter of 24, operation of break-even and cash flow positive in 25.
spk06: Right.
spk02: There's no change there.
spk06: Yep, I just needed a reminder. Okay, that's perfect. Thanks a lot. Thank you.
spk04: There are no further questions at this time. I would like to turn the floor back over to Shaitan for closing comments.
spk02: Thank you very much, everyone, for joining us for the quarterly call. Looking forward to see you next quarter. Thank you.
spk04: This concludes today's event. Thank you for joining us. You may now disconnect your lines.
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